We are often asked for strategies or tips on how to pay off mortgages faster. Given the current historically low interest rates, it is a perfect time to review your debts and see if there is an opportunity for you to save. Below we have included some tips and strategies for consideration. If you wish to discuss your individual situation please contact us.
Firstly, and most importantly, you must ensure your current loan suits your needs. If you are not sure of your loans features or terms, make a time to discuss with your broker or adviser. It is important that you understand your current commitments and the terms of your loan. You may discover that changing lenders or products could actually save you money long-term.
Paying your mortgage fortnightly, compared to monthly can save you a great deal over the life of your loan. This is because you actually make more payments as there are 26 fortnights, compared to 12 months. For example, a $350,000 loan on a 25-year term with a variable rate of 4.44% p.a. would be paid off 3 years faster by paying fortnightly instead of monthly.
Interest rates have never been so low in Australia. Given this, it is the perfect opportunity to review your loans and see if you could be paying less. Of course, you must assess this against any break costs or fees on your current loan and you must always consider whether the loans features are suitable for your needs.
Is it time to look beyond the big-four banks? The rise of non-bank lenders (backed by larger banks) has increased over recent years and they are working hard for your business. We always recommend that you discuss any options with your broker to ensure the loan suits your needs and offers features you require. For example, does it offer an offset account facility and what are the fees and charges.
Offset accounts can save you money in interest payments.
For example, if you have a home loan of $450,000 at 5 per cent per annum and have $50,000 in your linked offset account per annum you are only paying interest on $400,000 of your loan whilst the $50,000 remains in your offset account. This equates to a saving of $2500 per annum as you will be paying $20,000 in interest as compared to $22,500.
Principal & Interest repayments
Interest is charged based on the amount of the loan remaining to be paid. As the loan (or principal amount) reduces so does the amount of interest payable. If you can reduce the interest you are paying, you can contribute more to the overall loan, hence further reducing the amount owed.
Ongoing review of loans
Never set up your loan and forget about it. The current loan market is very competitive and since mortgage debt is one of the biggest debts most people encounter, a pro-active effort needs to be made to see if there are opportunities to save money. We recommend that you put a note in your calendar for an annual home loan health check. You never know what you could be missing.
Now is the time to ask your existing lender or mortgage broker if you can get a better deal. If they cannot offer you a more competitive rate, it might be time for you to change. WealthPartners lending specialists can help you understand if there is a better option available which will save you time and money.